American Airlines and US Airways could save more than $2.5 billion in 2015 because the airline does not hedge its jet-fuel costs and does not take part in profit-sharing with employees, said a Wall Street analyst on Friday.
American is one of the few airlines that does not buy hedges, which are futures contracts that lock in fuel prices in advance.
Declining oil prices will save American about $1.3 billion, says airline analyst Hunter Keay of Wolfe Research L.L.C. According to Keay, American would pay 30 cents a gallon less in jet-fuel than top competitors Delta Air Lines and United Airlines, which hedge jet-fuel prices to save money when prices are high.
Delta has said it paid an average of $4.62 to $4.77 per gallon of jet-fuel in the last three months of 2014, which is about $2.59 to $2.64 per gallon when you exclude mark-to-market adjustments from hedging.
Jet-fuel prices are $1.60 presently as opposed to the nearly $3 price tag they had last winter. Economists predict that crude oil prices will sink below $40 a barrel but could rebound to around $80.
It’s also important to note that those airlines that do hedge do not depend on hedging for 100% of their jet-fuel, that would be unwise.
Today, the Associated Press and Fox Business are reporting that for the first time in 5 years, crude oil prices have dropped below $50 a barrel.
American could also pocket an additional $1.2 billion because it does not have profit-sharing plans with employees like other major airlines do, all of this spells out big savings for the airline as it moves to finish its integration and works to get a single operating certificate from the FAA.
Source: Linda Lloyd, The Inquirer